Rental Inflation Continues to Cool but Remains Elevated
Welcome to our UK Rental Market Update June 2025.
June 2025 marks another month of gradually moderating rental inflation across the UK. The average annual rental inflation eased slightly to 3.6%, down from May’s 3.8%, signaling ongoing moderation from earlier highs experienced in recent years.
Current statistics:
- Actual Rental Inflation (June 2025): 3.6%
- Forecasted Rental Growth (2025): Revised to 2.8% (down from 2.9% in May)
Driving factors behind easing rental inflation:
- Renters hitting affordability thresholds, limiting further increases.
- Steady stabilization of general economic inflation and wage growth.
- Increased tenant mobility in search of affordability, prompting competition in select areas.
Rental Demand Softens Slightly, but Pressures Persist
The Rental Demand Index declined slightly to 188 (base year 2022 = 100), down from May’s 190. Despite this minor easing, demand remains substantially higher than historical norms, sustaining market pressures.
Key statistics:
- Rental Demand Index (June 2025): 188
Drivers behind continued strong demand:
- High mortgage rates are deterring renters from entering homeownership.
- Persistent demographic shifts toward long-term renting, particularly among younger and middle-income households.
- Ongoing undersupply in the rental and housing markets, constraining available options.
Planning Approvals Hit a New Low
Planning approvals for new housing units further declined in June, reaching just 34,500 units, down from 35,000 in May and significantly lower than previous years. This intensifies future supply concerns and exacerbates the structural imbalance in the housing sector.
Planning approvals statistics:
- June 2025 Approvals: 34,500 units
Contributing factors to the decline in housing supply:
- Increasing landlord exits due to regulatory burdens, higher taxation, and mortgage rate pressures.
- Insufficient momentum in the build-to-rent sector to offset private sector shortfalls.
- Persistent delays and complexities within the planning system discouraging new developments.
Combined View: Key Market Pressures at a Glance
This multi-axis chart provides a clear overview of all the trends shaping the rental market between 2022 and 2025
Outlook for the UK Rental Market
The UK rental market remains under significant strain despite signs of slowing rental growth. The fundamental imbalance between strong demand and limited supply will likely persist into 2026 unless proactive policy measures are implemented. Key areas needing attention include:
- Simplifying and expediting the planning and approval processes.
- Encouraging new build-to-rent initiatives to increase rental stock.
- Introducing targeted policies to retain and encourage responsible private landlord participation.
